Gold, during the last decade went from $250 an ounce to well over $1,900. The reason behind the supportive rise of this precious metal is the horrible economic situation as well as the sharp drops in the market led to many investors to look to gold as the only solution they can rely on. Moreover, gold will always be on top of its value regardless if it’s worth $2000 or $500. As a general rule in investing, when so many people are already crowding the stock market, it is generally worth steering away.
Gold: Already proven as an inefficient safe haven
Aside from the distinguishing bubble which in which gold displayed leading up to the peak nearly two years ago, the massive volatility as well as several drops should have already been an enough warning to most investors of the risks considering gold as a last ditch effort to preserve their assets. Nothing that drops that significant is considered safe and the reliance on the yellow element was actually one of the primary reasons that gold was in a bubble.
A $2000 gold is extremely unlikely to occur even in the next few years to come since the prices of gold have dropped dramatically and is already being branded as a poor investment choice. Investors can opt to purchase gold on the dips and profit from the bounces, but it would still be highly unlikely that it will reach the $2000 level. Hence, it is a good start to look for better opportunities in the market if there are any.
The reason behind the gold bounce
After a long period of ambiguity, gold prices had been stagnant in a sideways trend and failed for the third time to reach the intended $1,800 level. The sharp drop of $600 indicates that the future direction of gold is going down the drain. The gold drop was way too fast and too sharp without any time to pause. The current bounce is no exception and is just considered as one of those moves that was anticipated. Moreover, the cost of mining and production is estimated running at $1,200 at the moment with the profitability of the gold mining sector continuously in the critical zone, the price of gold is expected to fall even further.
In addition, China and several other emerging markets are bouncing or recovering well from their economic struggle, and the market demand in their region is much more stable. Finally, quantitative easing is still not over which further supports gold for the moment. Once the QE ends or when gold investors realise that monetary policy will no longer support gold prices, there will ultimately be an expected drop in the value of gold in the future.
Gold will definitely fail once more
Gold’s rise since$1200 is merely a bounce and not considered a full recovery. If it were true, it would mean that gold will swell to new highs of more than $2000. The expected price range of gold from the bounce is between the $1500-$1700 range before the next leg and might even crash at the $1,800 the most. Despite the gut feeling that gold will rise in the near future, many experts recommend that investors would be better off investing in other commodities and selected stocks which have a better probability of outperforming the precious yellow metal. Below are among the reasons why investors should stay away from gold.
- The best times are history. The days of fanatical investments and excessive reliance are all but behind the pages of history.
- The reality of the present economic situation is that gold is no longer a safe haven anymore as it was back then, considering the numerous failure of gold to perform in times of economic downturn.
- Gold is in on the ropes and is losing steam. It has been an accepted economic prediction that gold will fail regardless of the economic situation. Even if the stock market falls, the economy will still be unable to utilise gold as a safe haven due to the shrinking liquidity and increasing correlations in time of deflationary periods.
- The debt ceiling and end are resulting in easy money nowadays. Gold’s rise has been strongly associated with the rising debt limit and the increase in the supply of monetary efforts.
- Gold’s long-term trend is over. It is no longer a question whether or not the price of gold will fall, but when it will eventually fall.
- The major overhead resistance is very hard to penetrate.
- Momentum to the downside is backed-up by heavy selling and the intense selling pressure has plummeted.
The ultimate fate of gold
The final destination of the price of gold is heading towards the start of where the bubble started at $250. The market is targeting $700 increase in the present price, however, this definitely won’t be happening overnight. Either way, investing in gold is deemed a losing fight because the best way behind us and when many catalysts are still holding on a few aces up its sleeves, gold prices can still bounce but only temporarily. The question is, why choose a losing investment method when there are several other good opportunities waiting to be tapped?